IPTV a Huge Hit in Hong Kong

PCCW's Now Broadband TV poised to beat cable

IPTV appears to be on the verge of conquering the Hong Kong consumer television market, with PCCW, the city's incumbent telecoms company, leading the charge.

Since PCCW's broadband television service, Now Broadband TV, hit the market in Sept. '03, it has enjoyed a voracious growth rate, and shows no signs of slowing down.

In 2005, the Now TV customer base surged 52 percent to 549,000, and brought in an average revenue per user of 114 hkd (US$15) in December.
Richard Li, chairman of PCCW, recently announced that the company expects the customer base will rise an additional 36.6 percent this year, to 750,000.

While cable TV still claims a majority of the market, a comparison of growth rates suggest the scepter may soon change hands. For example, the market leader, i-Cable Communications, ended 2005 with 738,000 pay-TV subscribers. However, in 2004 they had a little over 700,000 customers, which is a growth rate of only five percent. If PCCW is correct in its own projected growth rate, it will pull up nose and nose with i-Cable by the end of the year, before leaving it in the dust next year.

For PCCW, the success of its IPTV service has been long-anticipated, with two previous dead-ends in 1996 and 2000. While both attempts were expensive failures, they did help lay the groundwork for lucky number three. Not only was PCCW able to learn from its mistakes, it also had already built a fiber-optic infrastructure.

The company also credits its success to providing customers with an "a la carte" subscription model, which allows them to purchase individual channels, in contrast to the traditional cable "bundle" model. PCCW says it was also able to secure better terms from content providers than those offered to cable operators, in part by ensuring them that content would not be able to be pirated. Because broadband lines only have enough capacity for one channel at a time, the channel switching is done at the exchange instead of the set-top box, which makes piracy almost impossible. It also allows the providers to track viewing statistics. Furthermore, Now TV also developed its own set-top box, which allowed them to immediately start their service. The product was offered free to new customers. This strategy appears to have paid off, as 93 percent of PCCW's broadband customers use the TV service as well.

Despite these significant successes, companies thinking of mirroring PCCW's strategy in other cities may not have such an easy go at it. Hong Kong is one of the most dense cities in the world, with a huge portion of the city's denizens living in fairly new high-rise apartments. This, in combination with the city's density, makes laying down the infrastructure extremely cost-effective.

Critics point out that wiring less-vertical cities will be much more expensive. This expense may in turn inhibit companies from offering the same attributes, like free box-tops and cheaper rates, not to mention the fiscal strength to purchase content.

Nevertheless, PCCW's success has drawn the attention of a number of companies that hope to do the same. It is currently advising telecoms firms throughout Asia and Eastern Europe.

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